Legal Risks of Operating Buildings Without Proper Permits in Indonesia

Why Indonesia Matters

Indonesia has undertaken extensive regulatory reforms to improve its investment environment while strengthening compliance standards.

The government increasingly utilizes integrated digital licensing systems and cross-agency verification processes. Building approvals, environmental permits, and business licensing are becoming more interconnected, making regulatory deficiencies easier to detect.

As investment activities continue to increase, authorities have become more vigilant in monitoring building compliance and enforcing applicable regulations.

Businesses that fail to obtain the required approvals may encounter operational disruptions that significantly affect investment returns.

Legal Basis and Regulatory Framework

Building administration in Indonesia is governed primarily by:

• Law Number 28 of 2002 concerning Buildings;
• Law Number 11 of 2020 concerning Job Creation, as amended by Law Number 6 of 2023;
• Government Regulation Number 16 of 2021 concerning Buildings;
• Government Regulation Number 21 of 2021 concerning Spatial Planning;
• Environmental regulations governing environmental approvals;
• Regional regulations concerning building administration and spatial planning.

Under these regulations, building owners and users are required to ensure that buildings satisfy technical, administrative, environmental, and operational standards.

Failure to comply may result in administrative sanctions and other legal consequences.

Definition and Compliance Obligations

Two of the most important building approvals are:

Persetujuan Bangunan Gedung (PBG)

PBG is the official approval permitting construction, renovation, expansion, or alteration of buildings.

Sertifikat Laik Fungsi (SLF)

SLF certifies that a completed building satisfies applicable safety and functionality requirements and may legally be occupied and utilized.

Businesses may also need supporting approvals, including:

• KKPR;
• Environmental Approvals;
• Andalalin;
• Warehouse Registration (TDG).

Each approval forms part of an integrated compliance framework.

Major Legal Risks of Non-Compliance

Administrative Sanctions

Authorities may impose:

• Written warnings;
• Restrictions on building activities;
• Suspension of construction;
• Orders to rectify violations;
• Administrative penalties;
• Restrictions on building utilization.

These measures can delay project completion and significantly increase operational costs.

Operational Disruption

Businesses operating buildings without proper permits may encounter difficulties in obtaining:

• Business licenses;
• Operational permits;
• Utility connections;
• Insurance coverage;
• Financing arrangements.

For manufacturing facilities and warehouses, regulatory deficiencies can disrupt supply chain operations and contractual commitments.

Increased Due Diligence Risks

Building compliance deficiencies often become apparent during:

• Corporate restructuring;
• Mergers and acquisitions;
• Financing transactions;
• Investment due diligence exercises.

Investors and lenders frequently require confirmation that buildings possess valid permits and certifications.

Failure to satisfy these requirements can jeopardize transactions and reduce asset values.

Environmental and Zoning Violations

Buildings constructed without satisfying environmental and zoning requirements may be subject to corrective measures and additional licensing obligations.

Rectifying non-compliance after construction is completed is often significantly more expensive and time-consuming than obtaining permits properly from the outset.

Reputational Risks

Regulatory disputes and operational interruptions can negatively affect investor confidence, customer relationships, and corporate reputation.

For multinational companies, reputational considerations are often as important as legal compliance itself.

Legal Solutions and Risk Mitigation Strategies

Businesses can substantially reduce compliance risks by implementing proactive measures.

Conduct Regulatory Due Diligence

Companies should verify building status before acquiring land, purchasing buildings, or entering lease arrangements.

Review Existing Permits

Existing buildings should be examined to determine whether:

• PBG has been properly obtained;
• SLF remains valid;
• Supporting permits remain effective.

Integrate Building Compliance Into Corporate Governance

Building compliance should form part of broader legal and operational risk management systems.

Seek Professional Assistance

Experienced advisors can coordinate technical consultants, licensing authorities, and environmental specialists to facilitate efficient compliance management.

Early intervention generally costs significantly less than remedial actions after violations have occurred.

How Lex Mundus Indonesia Can Assist

Lex Mundus Indonesia assists foreign investors and businesses in identifying, managing, and mitigating building compliance risks.

Our services include:

• Building permit due diligence;
• PBG and SLF application assistance;
• Building compliance audits;
• Environmental and zoning assessments;
• Regulatory risk assessments;
• Government liaison and licensing coordination;
• Market entry advisory services.

We help investors develop legally compliant project structures while minimizing regulatory uncertainty and operational disruption.